The rise of the ‘F@$K It’ investor

This is an audio transcript of the Behind the Money podcast episode: The rise of the ‘F@$K It’ investor

Michela Tindera
At the beginning of the pandemic, Chris Zettler had a lot of time on his hands.

Chris Zettler
I was stuck at the house and had to find something to do. I did not have too many expenses at the time.

Michela Tindera
Chris is in his thirties and is studying for a degree in finance from the University of Alabama at Birmingham. And Chris says he decided to take that extra time and try out investing in the stock market. He decided to start with companies that would be considered responsible investments.

Chris Zettler
I bought solid companies that had been around for 30 years, and I saw being viable 30 years in the future.

Michela Tindera
Those were companies like Coca-Cola and Southwest Airlines.

Chris Zettler
But it wasn’t quick enough. It wasn’t doing anything fast enough for me.

Michela Tindera
But not long after this, an entirely new trend in the stock market would catch on.

News report
Tonight, it’s Wall Street’s David versus Goliath. The struggling video game retailer GameStop suddenly one of the hottest stocks.

News report
But Karl, this is what’s gripping America, and we don’t really have an answer . . . 

News report
The video game retailer has soared about 800 per cent in the last week.

News report
All eyes are on AMC this morning after shares of the theatre chain nearly doubled on Wednesday.

Michela Tindera
In a bizarre turn of events, struggling stocks like the video game store GameStop and the movie theatre chain AMC suddenly became hot commodities thanks to hordes of social media users driving the stock up higher. Eventually, Chris decided to take his own ride on the meme stock wave. Chris took $1,000 that he had in savings and his government stimulus checks, and in May of last year, he decided to buy stock in AMC. The next month he sold it for more than double what he had paid. And around the same time, he also tried out some even riskier investments too, like options trading. That would let him buy stock for a set price on or before a set date. And he says he decided to buy call options in Virgin Galactic, which is Richard Branson’s space exploration company. And his account, well, it sort of went to the moon.

Chris Zettler
My account doubled in a single day because of that call option value. It was the biggest rush I’ve ever had.

Michela Tindera
Chris saw his account go up and down and up and down.

Chris Zettler
I would wake up at, like, 4.30 every morning to check futures and make sure my, that my account wasn’t at zero.

Michela Tindera
Chris says that this time in his life felt pretty stressful.

Chris Zettler
In the 4.00 to my time, 8.30 window, you can’t do anything about it. You can’t sell. You can’t buy. You can’t do anything. You can just watch and suffer.

Michela Tindera
Chris had started to see both the highs and lows of these markets, but how long could he keep this going before he might lose it all?

[MUSIC PLAYING]

Over the last decade, it’s become more and more difficult for young adults to build wealth in more traditional means. They’re saddled with student loan debt. Housing costs have skyrocketed and inflation has since hit an all-time high. And so this experience that Chris Zettler shared is hardly unique. In fact, he’s part of a whole generation of younger investors who’ve decided to test their luck buying into volatile assets like meme stocks, crypto or NFTs with the small chance that they might hit it big. On today’s episode, what does it mean when a generation of investors has decided to take their money and treat it like a lottery ticket? I’m Michela Tindera from the Financial Times, and this is Behind the Money.

[MUSIC FADES]

So, Madison, welcome to the show.

Madison Darbyshire
Thanks for having me.

Michela Tindera
So Madison writes about retail investors for the FT. That means reporting on people like you and me and how they decide to invest. And since the beginning of the pandemic, she started to notice something.

Madison Darbyshire
So I first got interested in this when one of my housemates came into my room and said, I think I’m going to download Coinbase. And I was really struck by this because this particular housemate did not even really use online banking. And so we started to talk about why she was interested. And she had just gotten back from having lunch with a friend who had bought bitcoin in, like, 2013. And then that friend had used essentially the money that they had earned from this investment to put a deposit down on a house.

Michela Tindera
I think a lot of people our age, like, we all know, maybe it’s not someone you directly know, but it’s a friend of a friend who has a success story like that that makes you, kind of gets the gears turning . . . 

Madison Darbyshire
Yeah.

Michela Tindera
 . . . like, maybe that could be me.

Madison Darbyshire
What I realised is that you don’t have the popularity of NFTs or cryptocurrency or meme stocks if you don’t have a generation of people who’ve essentially been excluded from meaningful wealth accumulation over the last decade. And you kind of feel like they have to get lucky to be financially OK?

Michela Tindera
And what do you mean by that?

News report
The growing gap between rich and poor Americans is one of the biggest challenges facing the country.

News report
A recent report reveals the world’s nearly 3,000 billionaires increased their wealth by $5tn last year.

News report
Consider this, two-thirds of the total wealth in this country is owned by the richest 5 per cent. At the same time, more than 38mn Americans are living in poverty.

Madison Darbyshire
We’re in a time with unprecedented levels of inequality. How many billionaires are there in America? And then how many people are living pay cheque to pay cheque? They look at the things that their parents have. They see houses and mortgages and comfortable retirements. And the financial reality of being young now can often make those things feel virtually impossible to access. You have a generation of people who are facing down being less well-off than their parents. If they play by the traditional rules, if they invest and save and, like, what, they get 1 per cent interest on their savings account. What’s 1 per cent gonna buy you? (laughter) So people started to think like, OK, I have this, I have $5,000. Five thousand dollars is never gonna buy me a house, but $5,000 of bitcoin, like that could be $500,000 or that could be $5mn. So why not take a chance? You know, the odds are better than zero. You know, when you take their options away from them, people behave in unusual and new ways. And we’re starting to see that play out in financial markets.

Michela Tindera
How so?

Madison Darbyshire
It’s hard to tell this story without telling the story of the rise of low-cost stock trading like Robinhood, that when commissions were eliminated from stock trading, all of a sudden there was no friction in the system. There was no sense of, oh, I have to place a trade that is gonna be this successful in order to cover the amount of money it will cost me to make this trade. So it was very easy to just, like, throw out shots. It was very easy to make money on options because the market was only going up. And so a lot of people got involved in the market during the pandemic when there was a price correction and all of a sudden it became a little bit cheaper to buy stocks. And as more retail investors got involved, there was a lot more like momentum behind certain popular shares. And it became much easier to make money on amplified trades or to use leverage.

Michela Tindera
What about other factors?

Madison Darbyshire
Social media has profoundly changed the way that people get information about investing, about the way they ask questions.

Michela Tindera
How?

Madison Darbyshire
We started to see research come out that people are much more likely to take big risks when they’re with their friends. People are much more likely to take risks when they think they’re being watched. And social media has played a role in creating a digital hang-out room for people who feel like they’re hanging out with their friends. And so it’s much easier to take a big risk and then lose tons of money if you can then post about it and laugh about it with your friends. Because people tend to post more about big gains than they do about big losses, it creates a false sense of risk where people think that, they tend to overweigh the positives and underweigh the potential negatives.

Michela Tindera
So, Chris told us that he found out about some of his stock picks by talking to friends on the messaging platform, Discord. Are you seeing these types of conversations play out on other platforms?

Madison Darbyshire
Yeah. So we’re seeing a lot of this. The conversation around these assets take place on social media platforms such as Reddit. Twitter is also big for it. Actually, the research is interesting in terms of how the platforms operate. So there’s evidence that investors on Discord actually benefit from the real-time discussion because it’s very easy to quickly dismiss misinformation.

Michela Tindera
Can you describe who kind of like the typical investor is, who you’ve seen making these kinds of high-risk decisions?

Madison Darbyshire
So there is data that men tend to be more impulsive investors. They require less information to feel comfortable making an investment decision. So that’s one factor in why they were so quick to kind of jump on some of these trades. But another factor that we see is men more than, more so than women have their kind of societal value tied to their professional and financial success as it’s become harder to accumulate wealth. We’re seeing that men in particular have been hit by this kind of step change.

Michela Tindera
Why are people having this appetite now to make these high-risk investments?

Madison Darbyshire
There was an interesting kind of confluence of events where you had social media, zero-commission trading, everyone was home (laughter) and stimulus checks, and this all kind of operated as a perfect storm to push people into the markets. And the other thing that we’re seeing is even though there was an economic pullback and the stock market got briefly cheaper, the cost of housing has only gone up at record rates. Inflation is eating away at people’s savings at record rates.

Michela Tindera
So do you feel like income inequality, wealth inequality is amplifying what we’re seeing with these risky investments?

Madison Darbyshire
Definitely, because as much as we have this kind of fuck-it economy of people who are like, well, why, why the fuck not? I’ll just put some money down. Maybe I’ll get lucky. We also have people with just stupendous amounts of money who are kind of like, why the fuck not? Like, I’m just gonna spend $65,000 on an NFT of a pet rock (laughter), which is just such a, it’s such a throwback to the actual pet rock phenomenon, which was supposed to be stupid, right? So it’s people who are spending ludicrous amounts of money on things that are supposed to be kind of stupid because they have so much money, and they don’t really know what to do with it. This normalisation of these assets by really rich people increasingly normalises them to a lower demographic of investor thinking, oh well, if that person is buying this NFT, then NFTs must be a smart investment. It compounds, like, the societal acceptance of these, of these assets that are relatively new and untested.

Michela Tindera
I think US listeners might think that this is just an issue here in the US, things like housing costs or inflation. But you found that this is actually something that’s been going on around the world. Could you explain where you’ve seen that, and is it for similar reasons?

Madison Darbyshire
So we’re seeing a lot of the same factors that are driving the trend in the US also show up in the UK and Europe. Housing is decidedly expensive. Wages have not gone up in a long time. There’s a real sense that this generation won’t have the same financial advantages that their parents knew. You know, you can’t . . . It’s a lot harder to not go to college, to have a blue-collar job and still be able to pay down a mortgage or afford rent to a major city. These things are increasingly out of reach for people, and so they’re reaching for the same alternative tools.

Michela Tindera
What do you think could change to make it less likely that young investors feel like they need to take these sorts of risks?

Madison Darbyshire
I mean, beyond like housing policy and wage growth, I think the number one thing that people talk about around improving outcomes in the space is education. It’s, financial education is not compulsory in American schools. It can be something that people feel that they have to seek out themselves. And if they’re seeking it out on social media, it becomes risky whether they’re getting the right information or what kind of communities are inspiring their trading behaviours. Financial education remains the biggest thing for combating this sense of despair, helping people realise that savings really can add up over time. Compound interest is a miracle drug.

Michela Tindera
So Madison, the market has since taken a real downturn this year. How are young investors handling this? What are you seeing now?

Madison Darbyshire.
It’s a little too early to say, but we’re still seeing that the levels of margin trading, so the amount of money people are using to leverage their bets or borrow money in order to place bets on brokerage platforms, remains above pre-pandemic levels. So people are still, you know, taking big swings with, you know, the potential for big gains but also big losses in a down market. And for investors, it can be very difficult to not throw good money after bad. You know, if you’re down a lot, there can be a real survival impulse to try and correct what’s going wrong, and that can lead to greater and greater losses.

Michela Tindera
To be honest, listening to all this, it’s rough to hear about so many people feeling hopeless about their future financial security, and it can really hit close to home. How are you feeling?

Madison Darbyshire
I think my takeaway from doing this reporting is that the people who are taking these big swings are doing it in a way that feels very rational to them. If you have a 1 per cent chance of success but the alternative is failure, the 1 per cent chance of success is the rational choice, right? If your security or your safety or your future is on the line, big swings make sense. And so my conclusion was that these investors, even though I might not agree with some of their decisions, were operating in a way that was financially rational, and the problem is on a much higher policy level. The problem seems to be that we’ve created a generation of people who don’t feel optimism about their futures. They don’t feel like they’re going to have the things that they want or that they need. And that is a bigger existential crisis that we should be dealing with as a culture.

Michela Tindera
Yeah, and this sort of reminds me of Chris, who we heard from at the beginning of the episode. We’ll hear more from him in a moment. But Madison, thanks so much for coming on the show this week.

Madison Darbyshire
Thanks so much for having me. This was fun.

[MUSIC PLAYING]

Michela Tindera
So for Chris, around this time last year, the stress of managing his trades was sort of getting to him.

Chris Zettler
And it ran up to, I think 50-52,000 was my highest point. Um. And the irony of the whole thing is that once I got to that point, I thought, my first thought was, all right, I’m going to slow down. So what, what did I do afterwards? I gave some of it back.

Michela Tindera
Chris says that after seeing the value of his investments go up so high, he then quickly lost about $20,000.

Chris Zettler
I’d finally decided to take some out. And it was a thought process of, OK, I have enough money to pay the rest of my school. So if people say that everybody blew their stimulus money, I am a contradiction to that. I paid for a degree.

Michela Tindera
So Chris’s story has a happy ending. He was able to take $20,000 and use it to pay for his college tuition. But even he acknowledges that a lot of his success is just chalked up to luck.

Chris Zettler
Looking back again, it was 100 per cent luck. I didn’t know anything. Frankly, I still don’t know anything.

Michela Tindera
Chris says he plans to graduate in December. And now that school’s paid for, he’s really pulled back the reins on his investing strategy.

Chris Zettler
I still hold a portfolio, but it is significantly less risky. I don’t worry about it on a day-to-day basis, and I just let it grow or not.

Michela Tindera
In fact, Chris says that if someone else asked him how they should invest their own money today, he’d tell them something very different than what he did.

Chris Zettler
I would pick probably a very low-risk amalgamation of assets. I don’t even like tech because of how risky they are now. Yeah, I guess that’s the full circle.

[MUSIC PLAYING]

Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Stephanie Horton is our contributing producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.